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About to Retire? Read This First

"I advise everybody not to save: Spend your money. Most people save all their lives and leave it to somebody else. Money is to be enjoyed."-- Hedy Lamarr

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Hedy Lamarr became famous as an actress, co-starring in hits with fellows such as Clark Gable and Spencer Tracy, but she was also a respected inventor, having developed a radio guidance system for torpedoes, used in World War II. She doesn't appear to have the most money sense, though, if she didn't believe in saving. Most Americans will need to save throughout their working lives to enjoy their lives and especially their retirements.

If you're getting close to retiring or are starting to think about it, here are some key things to know.

Retirement can be more challenging than you expected

Although many of us count the months and years left until we retire, retirement won't be as much fun for some of us as we expected. A 2012 study from the Employee Benefit Research Institute found that more than 10% of retirees were completely dissatisfied with retirement, with only 49% finding their retirement "very satisfying."

You may be tired of working, but the routine of having a place to go and things to do every day may have been serving you very well. Don't be surprised if you miss your workplace and find yourself restless in retirement. Retirees and seniors watch more television than anyone else, but that can be isolating and dangerous for their health. It's important to stay active for your physical health, as that can keep your bones and heart strong. Being social has been shown to pay big dividends, too, such as keeping you mentally and physically healthier and possibly keeping dementia at bay. Online resources can help a lot. At Meetup.com, for example, you can find and join groups of people with shared interests, such as gardening, theater, hiking, or playing board games. Online dating sites, meanwhile, can serve older singles as well as young ones.

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Be conservative in your retirement income planning

Don't assume that your retirement will last about 20 to 25 years, perhaps from age 65 to 85 or 90. More and more Americans are living well beyond that, sometimes even to 100 and beyond. Be sure to consider the possibility that your retirement might last for 35 years or more -- especially if you retire early. That's a long time. You'll not only need to keep yourself healthy and active as much as possible during that time, but you'll also need your money to be able to last a long time.

Healthcare costs in retirement can be hefty

One reason to plan conservatively is that you don't know how much healthcare will cost you in retirement. According to Fidelity Investments, a 65-year-old couple retiring this year will spend, on average, about $260,000 out of pocket on healthcare in retirement. And that's just the average! Many people will spend much more, though many will also spend less. You can increase your odds of spending less by getting and staying as healthy as possible, exercising, and eating nutritious foods.

You can protect your last years with a deferred annuity

One way to ensure that you don't run out of money before you run out of breath is to buy a deferred fixed annuity, sometimes called longevity insurance. As opposed to an immediate fixed annuity, it doesn't start paying immediately. Instead, the insurer agrees to start paying at a future point, such as when you turn a certain age. For example, a 70-year-old man might spend $50,000 for an annuity that will start paying him about $1,600 per month for the rest of his life beginning at age 85.

An immediate fixed annuity can serve you well

You might also consider buying one or more fixed immediate annuities, to generate dependable income for the rest of your life. It's kind of like buying yourself a pension. (Variable or indexed annuities can be very problematic, but fixed annuities are simpler, typically with fewer restrictions and fees.) Check out the kind of fixed annuity income you might buy at recent interest rates:

Person/People

Cost

Monthly Income

Annual Income Equivalent

65-year-old man

$100,000

$545

$6,540

70-year-old man

$100,000

$623

$7,476

70-year-old woman

$100,000

$586

$7,032

65-year-old couple

$200,000

$937

$11,244

70-year-old couple

$200,000

$1,029

$12,348

75-year-old couple

$200,000

$1,178

$14,136

You can live on less, if you need to

If you don't seem to have enough saved to carry you through retirement, you can make your situation better by cutting back on your spending if you have to. A little Googling will turn up lots of suggestions, such as making extra money from part-time tutoring, relocating to a less expensive home or region, and seeking senior discounts -- which can not only give you a break going to the movies but might also reduce your property taxes. There are lots of ways to increase your income in retirement.

Don't write stocks off prematurely

It's true that as we approach and enter retirement, it's smart to think about shifting some assets from stocks to bonds or more stable securities. But that doesn't mean retirees can't keep a significant portion of their portfolio in the stock market, where it's likely to grow the fastest over many years. Remember that if you have 20 years of retirement ahead of you, a big chunk of your money that you won't need for at least 10 years might remain in stocks.

Consider a Medicare Advantage plan

Be sure to enroll in Medicare on time -- in the month of your 65th birthday or the three months before or after it -- or you may face higher premiums for the rest of your life. Look beyond the "original" Medicare package of Part A and Part B coverage, which many people augment with Part D prescription coverage and Medigap supplemental coverage, and consider Medicare Advantage plans. Offered by private insurance companies and regulated by the federal government, they're required to offer at least as much coverage as original Medicare and they often offer more, such as dental, vision, and/or prescription coverage. They may cost you less out of pocket, too. Look into them and run the numbers.

Prepare for a range of tax rates

You may be used to just paying taxes on income from your paycheck, but in retirement it's common to receive income from a variety of sources that receive different tax treatments. If you have savings in a regular, taxable brokerage account, for example, you'll face capital gains tax rates on any assets you sell. That's currently 15% for most people for long-term gains (and qualified dividends) and your ordinary income tax rate for short-term gains. Retirement savings accounts get different treatments, too. Money withdrawn from a Roth IRA or Roth 401(k) will be tax-free if you follow the rules. Money taken from a traditional IRA or 401(k) is treated as ordinary income. Even your Social Security income -- up to 85% of it -- can be taxed, if your income exceeds a specified level.

Look for special tax breaks

There are some special tax breaks for older folks. For example, those aged 65 or older can use a higher standard deduction than the rest of us. For 2017, the standard deduction is $6,350 for a single filer and $12,700 for those married and filing jointly. But someone who is 65 or older can add an extra $1,250 or $1,550, depending on whether you're married and/or blind. Your property taxes might be reduced, too, if you're past a certain age. Check with your local tax authorities.

Be strategic about Social Security

Being deliberate and strategic about when you start collecting Social Security can really pay off. More people begin collecting benefits at 62, the earliest age at which they can do so, than at any other age, but the longer you can delay starting, the bigger your checks will be. It's not generally a huge mistake to start early, though, because while the checks will be smaller, there will be more of them. Starting to collect at 62 can help you be ready to retire sooner. Still, if you can delay and you think you may live an extra-long life, bigger checks can be handy.

If you're married, look into spousal strategies, as they can be extra powerful. For example, if you've earned a lot less over your working life than your spouse, your spouse's benefit checks are likely to be larger. The two of you might, if possible, start collecting your checks early while delaying collecting your spouse's checks, so that they can grow larger. Eventually, when one of you dies, the surviving spouse will get to collect the larger benefit checks.

You will need help

Finally, understand that no matter how independent you've been for many decades, you'll probably eventually find yourself needing help in retirement. Brace yourself for that, because it can sometimes be hard. Know to expect it and perhaps practice asking for help now and then.

Don't leave your retirement to chance. A little thinking and planning now can make your future decades more successful. It can be smart to consult a financial advisor, too, for help strategizing about your overall retirement plans as well as your Social Security strategy.

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